TMI Blog1991 (12) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... ration in the light of the decision of the Supreme Court in the case of Jer Co. v. CIT [1971] 79 ITR 546, as well as subsequent decisions of the Andhra Pradesh High Court. The Bench accordingly referred the following questions for consideration by a Special Bench of the Tribunal:--- (1) Where a partnership firm is formed for carrying on several businesses and even if one of the businesses is held to be illegal, whether registration can be rightly refused to the firm? (2) Where the partnership deed is silent as to whether a partner has brought into the partnership firm the licence of privilege which he might have obtained in his personal capacity but the firm is earning incomes out of the privileges or licences thus obtained by one of its partners in his personal capacity, whether it can be held that the concerned partner has transferred the licence or the privilege to and in favour of the partnership firm of which he is a partner? (3) If the answer to the second question is in the affirmative, whether such a transfer is prohibited under the provisions of section 15 of the Abkari Act (Kerala) read with Rule 6(22) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kerala Abkari Act and Rules, the assessee was not entitled to registration. He accordingly passed an order under section 185(1) of the Income-tax Act, on 30-7-1984 refusing registration for the assessment year 1982-83. 4. On appeal, the Appellate Assistant Commissioner of Income-tax, Trivandrum, noted that the Abkari Act did not require that every partner should obtain a separate licence in order that the firm can carry on the business in arrack and consequently the business carried on by the firm under the licence issued to one of its partners was not in violation of the provisions of that Act. He was also of the view that it did not amount to transfer of the licence by the partner to the firm and hence there was no illegality in the constitution of the firm for which the assessee could be denied registration. He accordingly directed the ITO to grant registration. 5. The revenue is in appeal. Shri C. Abraham arguing for the revenue contended that the licence granted under the Abkari Act was personal to the individual as otherwise the object of the statute to prevent undesirable persons from obtaining the licence would be defeated. It was argued that even the firm referred o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Andhra Pradesh High Court in CIT v. Nalli Venkataramana [1984] 145 ITR 759, wherein it was held that the decision of the Supreme Court had the effect of impliedly over-ruling the Kerala High Court decision in Union Tobacco Co.'s case and similar observations of the Patna High Court in CIT v. Narpati Khan Co. [1974] 97 ITR 645 at page 651. According to the assessee, there was no transfer of a licence and even if the exploitation of the licence by the firm was considered to be a transfer, it did not amount to violation of the rules and could not be regarded as affecting the legality of the partnership. Reliance was placed on the decision of the Andhra Pradesh High Court in CIT v. Three Aces [1981] 176 ITR 160, wherein it was observed that even if there was a violation of the provisions under the Excise Act, it would not be a relevant or adequate reason for refusing registration or grant of renewal of registration under the Income-tax Act. Lastly, it was pointed out that the business had ended in a loss and, therefore, the issue itself was academic. 7. Shri V. Ramachandran, appearing for the intervener, argued that even if a partnership was constituted in order to provide funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24 (sic), 1988 SC 1564 (sic) and Uttar Pradesh Maharidyalaya Tadarth Shikshak Niyamitikaran Abhiyan Samiti v. State of U.P. AIR 1987 SC 1782 to contend that sub-letting was not considered to be transfer and since the word 'transfer' occurs in the phrase "sale or otherwise transfer' it must be considered to be a complete divestiture of all rights unlike sub-letting where only possession is given. In other words, the argument was that the exploitation of the licence by the individual licence in partnership with others did not amount to a transfer at all and was not in violation of the Abkari Act so as to make the partnership ineligible for registration. 9. In reply it was contended on behalf of the revenue that the Supreme Court had held in 1957 SC 527 (sic) that the expression 'otherwise transferred' should be considered to be of wider import and in the case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC), the bringing in of an asset to the firm was accepted as a transfer. 10. We have considered the submissions and we have perused the records of the case. We must find whether there was in fact a transfer of the licence granted to Shri Raveendranathan to the partnership fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated at each act and where that be done the act would be treated as forbidden (Vide Buckley, J., in Victoria Daylesford Syndicate Ltd. v. Dott). The counsel for the assessee has not been able to satisfy us about the incorrectness of the aforesaid test and, applying it to section 6 of the Act, it is clear that a person is punished for each act contrary to the provisions of the Act or rule. It follows the act is forbidden and the contract to do so is void". On this reasoning, the Kerala High Court held that the formation of a firm to exploit the licence under the Cochin Tobacco Act was void. If we apply the same test to the provisions of the Kerala Abkari Act, which as already noted in that decision to be quite different from Cochin Tobacco Act, we find that the conclusion has to be different. We do not find any provision under the Kerala Abkari Act for punishing the licensee when he transfers his licence. Firstly, section 15 only prohibits that no liquor shall be sold without a licence though a person having licence to manufacture today may purchase today from a person who does not have a licence. The section uses the expression 'person' which is defined in the Kerala Interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only renders the licences liable to cancellation on breach of the conditions of the licence but sections 54 and 58(c) make it punishable with imprisonment or fine [See Motilal Chunnilal's case at page 698]. In contrast, as we have already noted, there is no such provision in the Kerala Abkari Act making the transfer of licence without permission a punishable offence. 13, For the sake of completeness, we may consider the impact of the other decisions cited before us. In the case offer Co.'s case, it was noted that while Rule 322 of the Excise Manual laid down that an excise licence is personal to the licensee to whom it is granted and a Collector should not allow a transfer or sub-lease or partnership of an excise licence without the prior approval of the Excise Commissioner. (Emphasis supplied) The licence itself was granted in Form F.L. 2. The Supreme Court pointed out in Jer Co.'s case at page 548 that "The licence does not prohibit the holder from entering into partnership by the holder of the licence; it merely provides that the licence shall not be sub-let or transferred. Since there is no prohibition against entry by the holder of the licence into a partnership the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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